Capital investment slowing in Canada: report

The growth rate of capital investment in Canada has slowed to a 40-year low

The growth rate of Canadian capital investment is being described as “anemic” and lagging behind the United States and other developed countries, according to a new report released on Thursday by the Fraser Institute, a public policy think-tank.

The report said the growth rate of capital investment in Canada has slowed to a 40-year low and is falling behind other developed countries in business capital investment.

“Slowing rates of capital investment by business are particularly notable for Canada, which risks impeding economic growth and living standards,” said Steven Globerman, professor emeritus of economics at Western Washington University and co-author of Capital Investment in Canada: An International Comparison.

The report said that between 2015 and 2017, gross fixed capital formation (GFCF) – a common measure of investment – increased only 2.5 per cent in Canada, compared to 6.4 per cent for the United States.

In particular, from 2015 to 2016 (the latest year of available comparable data), Canada’s rate of GFCF investment actually fell 1.2 per cent, while countries in the Organization for Economic Co-operation and Development (OECD) saw an increase of 3.6 per cent, said the Fraser Institute.

“Investment growth in recent years has been especially weak in Canada’s business sector, particularly in the areas of machinery, equipment and intellectual property – investments that lead directly to improvements in productivity that benefit workers and consumers,” it said.

“Canada is falling behind other developed countries in business capital investment – a vital ingredient for increasing living standards and prosperity,” said Globerman.

“Encouraging greater levels of investment with more favourable tax treatment of business income and capital gains should be a priority for policymakers across Canada.”

The report said machinery and equipment investments in Canada in 2015 were 8.9 per cent of GFCF compared to 15.5 per cent in the U.S., while investment in intellectual property (patents, ideas, innovations, etc.) in Canada in 2016 was 11.9 per cent of GFCF compared to 26.2 per cent in the U.S.

Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.